Best Thread The Order Book - Why Bother?

[Liquid validity]

I might have a few things that could help in that regards...

PM me if you want to discuss.

PM sent.
Didn't have much time earlier, despite me saying I use a similar method for entry,
mine is more about providing a reason for entry rather than precision.
The end result has more to do with skewness and kurtosis as opposed to scalpel
like precision.

 

[ChocolateDigestive]

pah, how long can you keep it clean mate before board plod turn up.

 

[ChocolateDigestive]

this guy is good.

http://www.youtube.com/watch?feature=player_embedded&v=JvFPpg363Q8#!

 

[barjon]

pah, how long can you keep it clean mate before board plod turn up.

better late than never

 

[ChocolateDigestive]

better late than never

and to think he spent all that time typing that post out.

 

[DionysusToast]

this guy is good.

Oct. No BS Day Trading webinar sample video - YouTube!

He is one of the few genuine trainers of traders out there, although he doesn't really train 1 on 1, he does do 1 month webinars where you can see him trade & ask questions.

I've done one and I'll do one again. It's a good experience both from the perspective of getting access to John and also from the people you will meet in there.

In terms of what I do vs what John does, there are many similarities but it is different.

The US Treasuries are some of the least volatile instruments to trade. This makes them much safer to trade. It also means that you really don't need a chart to trade them, a volume profile is enough. There is spreading activity across the treasuries too which can tip your hand. The liquidity is massive and you can trade size, like 100's of contracts without making so much as a dent in the market. You can make a lot of money trading 100 contracts for a 1 tick trade on ZB when the $/tick is $31.25 and retail commissions at just $2 per r/t.

Treasuries are the exact opposite of something like Crude Oil or Nasdaq Futures. These instruments are very thin and very volatile. If you placed a market order for a few hundred contracts in Crude, you could move it 10 ticks before you'd finished getting filled.

The ES is somewhere in the middle. On the Treasuries, you can join the bid/offer and often get a fill. On the ES, it's almost impossible to do that if you have the direction right. On the ES, the chart is more relevant. Being more volatile, there are more intra-day swings and more points of interest (or points of pain).

On the ES, I will have an expectation that the market will behave a certain way. I will then use the DOM/T&S to confirm that and pick my spot for entry. Once in, I will be very focused on the DOM/T&S but once I have a bit of breathing room in the trade, I like to walk away from the screen and give the trade time to develop.

This is different in a couple of respects. Someone that scalps the order book will be focused on the DOM and be out as soon as the momentum stops. I won't do that on the ES, momentum will stop-start-stop-start but I know that the instrument likes to run a bit and I know it won't do that in a single move.

So - the DOM/T&S is refining/rejecting an entry and that entry is most often defined by the price action I see on the chart. Now, there are times that the action on the DOM superceeds what I see on the chart but that is not the norm.

Of late, volatility has been low on the ES but it looks to be picking up again and now I'm having to adjust back to that.

I do know a trader that trades CL full time using DOM/T&S. It's not something I could do and I don't really get how he does it. It seems that when it comes to reading order flow, some markets suit people better than others. I'm a 'thickie', the CL guys are 'thinnies' and the treasuries guys are 'ultra-thickies'.

 

[tar]

Trading is much like football or any other thing where the talent is required if you are good then you are good whether you use TA , PA , DOM ... etc then you are going to make it , it is a talent ofcourse you still need training and you still need your trading tools to improve your results but if you cant make it then you cant , there is no such thing as a holy grail or a special indicator , there isn't a mechanical system : if you did steps 1 + 2+ 3 ... then you will make money , if there was one then it is already obsolete because of the competition in the markets ...

 

[DionysusToast]

and your point is?

 

[ChocolateDigestive]

I like John Grady's take on futures markets. Most of them have no financial use whatsoever, sure a while back some farmer wanted to hedge his crops now some people want to hedge but in the main it's just a game designed to transfer money from big traders to small traders with a slice in it for the MM. Well that's what I think he was getting at reading between the lines.

 

[Splitlink]

and your point is?

1-2-3=6? :smart:

 

[DionysusToast]

I like John Grady's take on futures markets. Most of them have no financial use whatsoever, sure a while back some farmer wanted to hedge his crops now some people want to hedge but in the main it's just a game designed to transfer money from big traders to small traders with a slice in it for the MM. Well that's what I think he was getting at reading between the lines.

Yup - it's space invaders & not much more...

 

[barjon]

and your point is?

I think the point is that it is YOUR skill that puts bread on the table, not your DOM. Thus it's not your DOM that "works" but YOU.

'Course every craftsman needs the right tools to get the best from their skill and you have built what you need to facilitate your style of quick-fire trading. That doesn't mean that someone with a different style can't work with tools you disdain for your own craft.

To take it near absurdity, I shouldn't think someone trading a month or two time scale would find what's happening on the order book just this minute of much use whatsoever.

 

[DionysusToast]

I think the point is that it is YOUR skill that puts bread on the table, not your DOM. Thus it's not your DOM that "works" but YOU.

'Course every craftsman needs the right tools to get the best from their skill and you have built what you need to facilitate your style of quick-fire trading. That doesn't mean that someone with a different style can't work with tools you disdain for your own craft.

To take it near absurdity, I shouldn't think someone trading a month or two time scale would find what's happening on the order book just this minute of much use whatsoever.

What has that got to do with this thread exactly?

This thread has nothing to do with 'my' DOM - it's about trading, there's lots of DOMS that people use and most use XTrader to trade this way.

This thread is merely here to discuss a set of techniques. Do we really need to discuss the blindingly obvious that everything isn't for everyone? Do we really need to mention that shock, horror - there are no magic bullets?

If so - why not start a thread on what will be an enthralling discussion of the obvious?

 

[barjon]

What has that got to do with this thread exactly?

This thread has nothing to do with 'my' DOM - it's about trading, there's lots of DOMS that people use and most use XTrader to trade this way.

This thread is merely here to discuss a set of techniques. Do we really need to discuss the blindingly obvious that everything isn't for everyone? Do we really need to mention that shock, horror - there are no magic bullets?

If so - why not start a thread on what will be an enthralling discussion of the obvious?

And an excellent thread it is as well. Nothing really - just answering the question you posed. Happy to clear it off if you want.

 

[DionysusToast]

And an excellent thread it is as well. Nothing really - just answering the question you posed. Happy to clear it off if you want.

Actually BJ - I was winding you up...

It is my impression, although I can't back it up with hard evidence, that retail traders end up looking at this sort of thing after a magic bullet search.

If you look at the mainstream sources of trading information, the order flow side is a niche that doesn't stand out immediately.

Certainly, I've not come across anyone who tries this first, apart from guys that are in prop shops.

I think that most that try it have been through the mill a bit and so aren't expecting it to be easy. Certainly if you read JGs book - he'll not put you under any illusions it's a walk in the park.

 

[Balthazar]

I think I post just at time. Thanks John Grady, I start understanding how it works.

http://www.trade2win.com/boards/general-trading-chat/145266-top-reversal-order-flow-reading.html

 

[DionysusToast]

Here's one from Friday. I'm getting the hang of Camtasia but the editing still eats a lot of time...

It was a low range day but a nice setup where there was some gameplay near the high with someone absorbing selling. A good example of making the market appear weak so they can buy.

It didn't go as high as I'd have liked but it is a good example of how they play it.

It's 1920 x 1080 - so you might want to download it and play it locally.

 

[darkcider]

and your point is?

Sorry about asking you questions on the other thread (Scalping), i realise they were out of context there. I'll repeat the questions here on your thread, seems like a better place to put them.

1) How many round-trips do you do per day on average?

2) What is your win:loss ratio or strike rate?

3) How do you catagorise the commissions paid for break-even trades?

I was a little bit cheeky there and slipped you an extra portion. Thanks in advance.

 

[SM_1]

Decent thread. What DOM is that DT? Got a few extra columns that what I'm used to

Have been a long time fan/user/student of order flow etc.

I'm curious as to how MANY setups/ideas/whatever you have that you mainly look for DT?

By FAR what I see most often is refreshing bids/offers, basically all what I see is that, market will be moving up, will be a decent/normal sized bid and a smallish offer, market will be printing into the offer but it will just stay there, and you will get say 500-1000 printing into a 100 offer or something, especially strong if it doesn't go bid. But that is mainly all I see, there are times when you get those really fast spasms of 1s and 2s printing through flat out on one side, but haven't really discovered if that tends to lead to anything yet.

I've also often wondered if other order flow traders have a plan, or scenarios laid out for the day, do you go through your daily charts, then down to hourly etc etc. then say "yep I think X is going to happen on the open so I'll trade accordingly" or is it just, wait till the market opens and look to see what you can see in the order flow and go from there, start with no bias basically, because technically if we're reading it right we should be on the move anyway?

Also what's your take on spoofing, say someone chucks up 3000 or something on the bid, do you read that as them actually getting short above those prices? Fooling others(algos most likely as humans surely aren't stupid enough to do it when there's spoofing) into buying their offers?

 

[DionysusToast]

Decent thread. What DOM is that DT? Got a few extra columns that what I'm used to

Yeah - I ended up making my own so I could better see the trades hitting the limit orders...

Have been a long time fan/user/student of order flow etc.

I'm curious as to how MANY setups/ideas/whatever you have that you mainly look for DT?

I don't really use setups as such, although I am a fan of the "No BS DayTrading" book. The 'setups' there are mostly about ways a guy will try to build a position without moving the market too much.

For me, I do use these but really they are a part of being able to read the flow. What you see most of the time is that buying in an up move just loses steam. Sort of dies out. Either that or it gets absorbed. Then it's just variations on that theme.

Those are the most common things I look for and then if we see sellers pile in after that point, I will join them.

I also don't mind jumping on obvious buying/selling pressure wherever it appears. I think one of the misconceptions is that you always need to look for a reversal, whether that is in the form of a trend reversal or the end of a pullback. If you watch the DOM often enough, you get a feel for when a move takes off and has some 'wind' behind it. Like on the ES - you might see 500 hit the offer, tick up, 600 hit the offer, tick up, 550 hit the offer, tick up - and that's something you can jump on.

By FAR what I see most often is refreshing bids/offers, basically all what I see is that, market will be moving up, will be a decent/normal sized bid and a smallish offer, market will be printing into the offer but it will just stay there, and you will get say 500-1000 printing into a 100 offer or something, especially strong if it doesn't go bid. But that is mainly all I see, there are times when you get those really fast spasms of 1s and 2s printing through flat out on one side, but haven't really discovered if that tends to lead to anything yet.

Agreed.... On the ES, it wont stop an uptrend as quite often what you are witnessing is one side of an index arbitrage program (according to an ex floor trader I met a few weeks ago) and so I tend to take these as 'the end of a pullback' and ignore them for 'end of a trend'.

I've also often wondered if other order flow traders have a plan, or scenarios laid out for the day, do you go through your daily charts, then down to hourly etc etc. then say "yep I think X is going to happen on the open so I'll trade accordingly" or is it just, wait till the market opens and look to see what you can see in the order flow and go from there, start with no bias basically, because technically if we're reading it right we should be on the move anyway?

When the ES went dull a 4-5 weeks ago (churning for an hour after the open), I switched off the charts and I haven't switched them back on. I do have a look before the open and mark up a few levels on the DOM but after that, I just go with the flow.

I should switch the charts back on but to be honest, I am in no hurry to do so as it's working ok right now.

Also what's your take on spoofing, say someone chucks up 3000 or something on the bid, do you read that as them actually getting short above those prices? Fooling others(algos most likely as humans surely aren't stupid enough to do it when there's spoofing) into buying their offers?

I think it pays to watch the opposite side. If you see spoofing on the bid and refreshing on the offer, then it's probably the same person absorbing the buying and spoofing the bid. So - on it's own, I don't really come to any conclusion about a large qty at any level. I try to get other clues - like what happens when price actually gets there.